Interest-free if repaid within a year! A step-by-step guide to applying for the Small Business Cashflow Scheme (SBCS)

The pandemic has made this an unusual and relatively difficult year for everyone. To help small and medium businesses through these challenges, the New Zealand Government has announced a series of support policies and schemes. The COVID-19 Small Business Cashflow Scheme loan discussed here is one of the measures supporting businesses and sole traders that have lost revenue because of the pandemic. Many business owners are likely to be eligible to apply to Inland Revenue for this loan and receive practical assistance.

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SCBC Loan overview

1. Applications for SBCS loans open today, 12 May, and close on 12 June. Most applicants will receive their loan within 5 working days.
2. The loan term is 5 years, and it must be repaid in full before 31 July 2025.
3. The annual interest rate is 3%, calculated from the date the loan is paid out. If the loan is repaid in full within a year, the 3% interest will not be charged. Businesses do not have to make repayments during the first 24 months.

Inland Revenue will administer loan payments and repayments under the scheme. Business owners are advised to speak to their accountant before deciding whether to apply.

SCBC Loan eligibility criteria

Your business or organisation must employ no more than 50 full-time equivalent staff.

Your business or organisation must be eligible for the Government's wage subsidy, with the subsidy received below $351,480. Here is a link to our previous explanation of the wage subsidy: click here.

Commonly owned groups comprising multiple businesses or organisations will be treated as a single business when applying.

Your business or organisation must have a reasonable and viable long-term plan. This generally means its directors have sound reasons to believe the business is likely to be able to pay its debts as they fall due over the next 18 months. Applicants must hold sufficient information to demonstrate the ongoing viability of their business or organisation. Inland Revenue may audit this.

Supporting evidence includes:

1. Short-term cash flow forecasts for your business;
2. Plans for your business's revenue sources under future market conditions, and forecasts of that revenue;
3. Financial statements showing your business will have sufficient funds to sustain its operations once the loan is included;
4. Your accountant's assessment of your business's viability and sustainability.

Small and medium businesses here include self-employed people and sole traders. 

SCBC Loan borrowing limits

Available loan amount =

$10,000 + $1,800 × the number of full-time equivalent employees

The maximum loan is $100,000.

Self-employed people can also receive a loan of up to $11,800.

Applicants can choose to accept the full approved loan amount or a smaller amount. However, they can apply only once and cannot amend their application after submitting it.

How is the number of full-time equivalent employees defined?

Number of full-time equivalent employees =

Wage subsidy amount ÷ $7,029.60 

The result is rounded to the nearest full-time employee.

The wage subsidy amount here means the subsidy received or that would otherwise have been received.

For example: 

Scott's Signage has 8 full-time employees and 4 part-time employees, and is eligible for a wage subsidy of $73,036.80. For the purposes of calculating its maximum loan, the company is treated as having 11 full-time equivalent employees.

Using the calculation above: $73,036.80 ÷ $7,029.60 = 10.4 (approximately 11 employees).

How to apply for an SCBC Loan

Log in to myIR, go to “I want to” and click “apply for a small business loan”.

Businesses without a myIR account must register first. 

To reiterate, consult your financial adviser or lawyer about whether this loan is suitable for your business, and consider whether you need consent from your bank or other lenders. 

Application process:

1. Provide your NZBN. Businesses without an NZBN must obtain one before applying for the loan.
2. Confirm that your business experienced, or forecast, a revenue decline of at least 30% during the period from January to June in 2020, as defined under the wage subsidy scheme.
3. Confirm that your business existed before 1 April 2020.
4. Confirm that your business is viable and sustainable, has a credible plan, and retains the relevant evidence.
5. Confirm that you will use the loan to pay core operating costs, including but not limited to rent, insurance, utility bills, supplier payments, council rates and water charges.
6. Confirm that the loan will not be passed on to business shareholders or owners, for example through dividends or loans.
7. Confirm that you have the appropriate authority to commit your business to this loan.
8. Confirm that you are at least 18 years old and have the legal right to apply for this loan.
9. Confirm that you understand Inland Revenue has not provided financial or other advice about this loan.
10. Agree to the loan terms.

SCBC Loan tax treatment

1. The loan is not subject to income tax or GST.

2. Business expenses paid using this loan can be deducted from business income.

Finally, Inland Revenue's detailed terms and conditions for the loan scheme are available here: https://www.ird.govt.nz/-/media/Project/IR/Documents/COVID-19/Small-business-cashflow-loan-scheme.pdf

About the author: Joey Wen
A New Zealand chartered accountant, Joey graduated from Victoria University in accounting and commercial law and has worked in accounting and tax for eight years. Joey currently works at chartered accounting firm Fuel Accounting, providing quality financial information and accounting services to help small and medium businesses operate more effectively and with greater peace of mind in New Zealand, while also helping accounting professionals and students stand out when seeking employment.